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Archive for Friday, July 20, 2012

Town Talk: UPDATE: Call center to bring 300 new jobs to downtown Lawrence; Setting the stage for $12M incentive debate for Ninth and N.H.; speculation that wine bar is set to move into 901 N.H. space

July 20, 2012

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News and notes from around town:

• UPDATE: There's confirmation that a major call center company has signed a deal to open a new center in downtown Lawrence with 300 employees.

The Results Companies has signed a lease to occupy 22,000 square feet of space in the lower level of the former Riverfront Mall at Sixth and New Hampshire streets. The Dania Beach, Fla.-based call center company will take over space that had been occupied by Affinitas, until the company closed down its Lawrence operations earlier this year.

The Results Companies handles customer service operations for a variety of Fortune 500 companies, and local leaders said they expect Results consistently will employ more people than Affinitas had in recent years.

"From what we have been told, we think the positions will be a little bit higher end positions, which may translate in to better things from a wage standpoint," said Doug Brown, a broker with Lawrence's McGrew Commercial Real Estate, who negotiated the deal.

An estimate on wage levels the company may offer wasn't immediately available Friday afternoon. Brown said he expects the company to begin operations in the space by Sept. 1.

According to the company's website, Results has revenues in excess of $80 million and operates six U.S. call centers and four international centers. The site says it looks to locate call centers in "communities with small-town values, where courtesy and empathy are a way of life."

The 22,000 square-foot space in the Riverfront is owned by members of the Simons family, who also own The World Company. The World Company is the parent company of LJWorld.com and the Journal-World.

• It seems like there is always a number to focus on when it comes to the project at Ninth and New Hampshire streets.

For the longest time it was the number 4. As in four stories. Developers said they had to have four stories to make a proposed hotel/retail project on the southeast corner work. Neighbors argued anything over three would damage the adjacent historic neighborhood.

Thus far, the development group, led by local businessmen Doug Compton and Mike Treanor, has prevailed on that front. City commissioners have approved plans for a four-story building.

But now city commissioners will begin focusing on a new number: $12 million. Commissioners at their Tuesday evening meeting will be asked to take a key vote to move forward a package of incentives for the project that is worth about $12 million.

The incentives package appears to have an inside track to approval Here’s why:

— City commissioners won’t have to find $12 million in their current budget or future budgets to pay for this incentive package. The incentives are proposed to be funded by two types of tax mechanisms that rely on new tax revenues rather than existing revenues.

The first is called Tax Increment Financing. How a TIF works is that the new property and sales taxes generated by new development will be used to pay for the incentive. Here’s a simplified example: If a piece of property generates $10 in property and sales taxes now, but will generate $100 in property and sales taxes once a new building is constructed, then the city, the county and the school district would get to keep its current $10 in taxes, but the remaining $90 in taxes would go to pay for the incentive.

The second method is called a Transportation Development District Tax. This one is simple to understand: It is just a new sales tax folks will have to pay. The proposal in this case is to charge a new 1 percent sales tax on purchases made in the new development. The new tax wouldn’t extend communitywide or even throughout downtown. It only would be on the purchases made within the new buildings constructed. One question on this one will be whether the new developments will have to post signs notifying customers of the special tax. That became quite an issue with city commissioners during the last election.

— The city is making the developers take the risk on the project. The developers don’t get their $12 million up front (technically, it is estimated at $11.8, but what is $200,000 among friends?) The city will pay the developers annually, based upon the amount of tax revenues the new development actually creates. If the development produces less tax revenue than projected, then the developers are out of luck. The city is under no obligation to make up the difference.

This is much different than how the city structured its first TIF deal way back in 2000. That was when the city used a TIF to help pay for a portion of the public parking garage in the 900 block of New Hampshire. Back then, the city financed the costs of the approximately $8 million garage, and the city would reimburse itself with the tax revenue created by the new development. When the development and the tax revenue largely did not materialize, guess who was out of luck then? Yeah, the city. The city apparently didn’t like that feeling because it does not structure TIF deals like that anymore.

— City commissioners, it appears, believe this project won’t happen without the financial incentive. Commissioners have received reports from an outside consultant they hired, which say the projects can’t be expected to make an average rate of return for the developers, unless the incentives are granted. Actually, the reports state even with the incentives, the projects don’t make an average rate of return. That has led the consultants to say the projects have a thin profit margin regardless, thus it would be really unlikely for the developers to build the projects without the incentive. At the end of the day, only the developers know whether they would build the project if they don’t get the incentives. I hear from people frequently that this is the part they really don’t like about the incentives game played at City Hall. It is basically poker. Who is bluffing and who is not?

— City commissioners like people living downtown. In addition to the much debated multistory hotel/retail project on the southeast corner of the intersection, this incentive package also assumes a multistory apartment and office building on the northeast corner of the intersection. I say assumed because those plans haven’t yet been approved by the city. But as proposed, the northeast building would add a little more than 100 new apartments to downtown. City commissioners have been pretty united that more people living in downtown will be good for the health of downtown.

— City commissioners like parking downtown. The apartment/office building is expected to have about 120 spaces of below-ground parking. The hotel/retail project is expected to have about 115 spaces of below-ground parking. Both of the underground parking garages would be private, not public, parking spaces. But thus far, commissioners have seemed to adopt the philosophy that even the addition of private parking will help address the parking concerns in downtown Lawrence.

So, those are the reasons the nearly $12 million incentives package may sail to approval at City Hall. If there is a stumbling block, though, it may be this:

— City commissioners are going to have to significantly alter a financial deal made with the public. This goes back to the public parking garage that was built in the 900 block of New Hampshire. When that garage was built around 2001, the city told the public it expected TIF revenues to pay for about 50 percent to 60 percent of the garage’s costs.

Well, that certainly hasn’t happened thus far. Based on documents from the city, it appears the city has made about $7.44 million worth of bond payments on the garage since 2001. From those same documents, it appears the new development that is part of the garage’s TIF district has contributed less than $500,000 to the project. My abacus is missing a couple of beads, but that’s not 50 percent. It is about 6 percent.

That percentage will start going up because the new apartment/office/commercial building at 901 N.H. — also built by a group led by Compton and Treanor — will start generating TIF revenues. But no one is projecting it will generate enough new taxes to get the district up to the 50 percent contribution once expected by the city.

But here is the other part of the deal the city made with the public. When the garage was built, the plan included any development built on the southeast corner of Ninth and New Hampshire also would contribute to paying off the garage. The deal was all new property taxes generated by new development (and I think all new sales taxes too) were to be used to pay for the garage.

But now the city is proposing to delete that part of the plan. It wants to take the property at the southeast corner of Ninth and New Hampshire streets out of the garage’s district. Instead, the new tax revenues from the hotel/apartment building would be used to help pay for the new $12 million incentive package.

The city, however, is proposing that $850,000 of the new tax revenue from the hotel/apartment complex should be paid toward the garage over a period of 10 to 20 years.

The city concedes the $850,000 amount is less than what would be paid toward the garage if the city simply left the southeast corner in its original district. How much less isn’t entirely clear in the city memos I have seen, and it will take more math on my part to come up with a number. But given that TIF revenues aren’t going to come anywhere close to paying for the 50 percent to 60 percent of the garage as once expected, it will be interesting to see if there will be any objections made to not capturing as much revenue as possible for the garage.

Of course, I think the concern at City Hall is if the taxes from the new hotel/retail project aren't used to help pay for the $12 million incentive package that both new projects may not happen. As the saying goes, a small percentage of something is better than 100 percent of nothing. That seems to be what commissioners are thinking these days.

• It is Friday, so it wouldn’t be complete if we didn’t speculate about a new restaurant for downtown. My understanding is that Doug Compton is close to signing a deal for a new wine bar to occupy the one piece of vacant space he has in his 901 building at Ninth and New Hampshire.

What I hear is that the owner of an existing downtown eatery is planning to open the wine bar in conjunction with an area caterer. I’ve heard the name of the restaurant owner, but I am waiting to get in touch with him. I’ll report back when I do.

As far as the space goes, it will be in the northwest corner of the building, along the Ninth Street side. The area has a little outdoor seating area attached to it.

• Another week, another set of land transfers from the Douglas County Register of Deeds.

Of note, it appears a company headed by Lawrence businessman Roger D. Johnson bought a couple of commercial pieces of property at 1100 E. 25th St. and 1200 E. 25th St. from Lawrence Bank.

Click here to see the complete list of land transfers for the week ending July 16.

Comments

rockchalker52 1 year, 8 months ago

May I have a glass of Joseph Phelps 1988 vintage Zinfandel, please? I believe it's around 13% alcohol with strong legs & heavy tannins, ripe with undertones of chocolate & berries.

What the hey? Just Chardonnay or Beaujolais? The hell you say?

Gimme the Gallo & leave the jug.

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oneeye_wilbur 1 year, 8 months ago

I wish lawtence would get a reservation call center for cruise lines and airplanes. Old people could work there and get some travel bennies

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Orwell 1 year, 8 months ago

Chad's poker analogy is interesting. If you were playing poker and knew the other guy never calls your bluff, would you ever stop bluffing?

If you say no to the initial request there's a reasonable chance they'll come back with a reduced request. The taxpayer benefits to the full extent of the difference.

And yes, any similarity between this and the free market is pure fantasy.

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pizzapete 1 year, 8 months ago

I thought it was great news that Results was bringing 300 customer service jobs to Lawrence. I visited their website and found that their pay rate is $8.50 an hour and many of the jobs that they offer are selling life insurance, satellite radio, and magazine prescriptions over the phone. Yeah, those kinds of jobs. It's kind of sad that these low paying jobs are what many have to choose from in Lawrence and that we aren't using our TIF money to promote better paying and more long term career orientated jobs. But hey, being a telemarketer will probably pay more than folding laundry, washing dishes, or working as a maid at the new hotel.

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woodscolt 1 year, 8 months ago

"City commissioners, it appears, believe this project won’t happen without the financial incentive." say the big wide eyed commissioners, so wide they can't see the obvious.

Simple answer: the project is not feasible:

"Commissioners have received reports from an outside consultant they hired, which say the projects can’t be expected to make an average rate of return for the developers, unless the incentives are granted." say the big wide eyed commissioners, so wide they can't see the obvious.

Simple answer: the project is not feasible:

If the private sector can't afford to build their building and the city doesn't have the 12 mill without using the same smoke and mirrors they used that didn't work to build the parking garage , then there is only one answer.

Face up commissioners: Regardless of how much of a benefit to Lawrence you think this project would be, the developers can't afford it without the 12mill you don't have to give them.

Simple answer: the project is not feasible:

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ksjayhawk74 1 year, 8 months ago

Wow, Compton gets to make his apartment building connected to the public parking garage FOR FREE and he is going to get out of paying any taxes to pay for the public parking garage with his new building across the street... AND he gets to build his own private parking garage that Compton gets to generate his own taxes from... AND the city pays Compton most of his own taxes back...

Why don't we just give Compton a negative tax rate, like -7%? That way, the more money he makes, the more money Lawrence taxpayers give him. That what I call incentive.

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Ken Miller 1 year, 8 months ago

Re: Call Center

The site says it looks to locate call centers in "communities with small-town values, where courtesy and empathy are a way of life."

Courtesy? Empathy? In Lawrence? Just read the blog posts.

Move along.

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MattressMan 1 year, 8 months ago

Everyone complaining about the incentives are barking up the wrong tree. Any business man worth a damn is going to ask for whatever they can legally get and quite frankly they would be stupid not to.I'm not a Doug supporter or against him one way or the other but the TIF's are there and he is asking for it. If you don't like how the TIF works you need to ba talking to the city commission and the state legislature.

As for Pete, nothing is stopping you or anyone else from investing in real estate in Lawrence. If you have the money buy the property and set your rates where you want them. All it takes is money.

And finally to those that say "I need (fill in the blank) for my house, why doesnt the city give me a break? Well your house isn't going to potentially generate thousands of dollars in tax revenue or create a hundred jobs. Plus I'm not sure but I think there are city programs that help homeowners rehab their houses with low interest loans through neighborhood resources. Just look here http://www.lawrenceks.org/pds/housing_programs

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KansasLiberal 1 year, 8 months ago

"Actually, the reports state even with the incentives, the projects don’t make an average rate of return."

If it won't make an average rate of return even with optimistic estimates and public assistance then why is this even being considered? That sounds like the project SHOULDN'T go forward, with our without ripping off the city. But this is just Compton putting more game pieces on his Monopoly board of Lawrence, so the decline of downtown will proceed!

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pizzapete 1 year, 8 months ago

It's clear to me that the real estate game in Lawrence KS is rigged. If you want to rent an apartment or a commercial space there are only a handful off people who own most of the property and who set the rental rates. If you don't know this already and want to get into the game be prepared to loose your shirt.

Real estate investment is supposed to be a lucrative business because the costs are high and the risk are very real. An investor, for example, may have to wait many years before it is economically feasible to build a project. Likewise, a developer may have to wait many years before they have a tenant for their property. These are the risk inherent to the business. And for that reason the city shouldn't be in the business of helping a developer that already has a clear monopoly on the cities real estate. If the game wasn't so rigged in favor of a few well connected individuals I'm sure there would be many others who would love to get in on the game.

I would encourage anyone thinking of renting a property, an apartment, or hotel room to ask first management for some incentives to help you pay for it. Maybe instead of paying the asking price of $13 a square foot you could work out a deal and pay only $3 a square foot. A little incentive is a good thing, right?

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mikekt 1 year, 8 months ago

Thanks for explaining the current version of the word "TIF" used in Lawrence, Ks..

Thanks for also documenting the expensive problem caused by the 2000 older style TIF issued in Lawrence., where the city is upside down for $7.44 million on an 8 million dollar garage.

Chad;.....was that $8 million dollars the cost ( with Interest Included? or before additional interest, to be charged long term, in addition to an $8 million basic build price? )?

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Keith Richards 1 year, 8 months ago

So Pete you would rather have those lots sit empty for another 20 years?

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Steve Jacob 1 year, 8 months ago

"That has led the consultants to say the projects have a thin profit margin regardless"

Anyone catch that? I am the opinion now that these builders in Lawrence are not in as good of financial shape as we think.

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pizzapete 1 year, 8 months ago

Thanks Chad for the explanation of how the TIF works. It's interesting the city commission is willing to change the rules of the game at this time regarding the payments for the garage. Any new development in that area should have to pay their fair share for the existing parking garage, period. The city shouldn't agree to a $10 tax payment when the developer would otherwise owe the city a $100 tax payment. Could you imagine how long this hotel would be in business if all the customers came to the front desk and said, "l'll rent that $100 a night room if you let me have it for $10 a night. Otherwise, I'm not going to stay here." Why is the city allowing Compton to come into town and get the $10 rate and not pay for the parking garage?

Compton has the money to build this hotel, take the financial risk, and pay his fair share of taxes. He's profited enough from the city of Lawrence to buy a jet and import zebras from Africa. The least he could do is pay his share of the taxes for this project. When will the city say enough is enough?

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lawrenceanglers 1 year, 8 months ago

Doug compton is putting in a wine bar huh. Just what we need...

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Southwester 1 year, 8 months ago

Why does he need incentives? Isn't the profit the project is expected to generate incentive enough? Aren't we all free-market capitalists here?

Oh I forgot, it's Compton... suckling at the public teat for private gain... now it makes sense.

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Catalano 1 year, 8 months ago

I'm a visual person. I think I need to see a flow chart of the whole incentives thing. Seriously. Could you work one up, Chad?

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